Content

Company Profile

Stock split

Working

IPO

Nykaa Share Split

Genius strategy to corporate governance nightmare

Repercussions

Industry Expert Review

Terminologies Used

References Used

Literature review
Nykaa is an Indian online retailer of beauty and wellness products. It was founded in 2012 by
Falguni Nayar, a former investment banker. The company's name is derived from the Sanskrit
word "nayaka," which means "hero" or "leading lady".

Nykaa offers a wide range of beauty and wellness products, including makeup, skincare,
haircare, fragrances, personal care, and fashion. The company also has its own private-label
brands, such as Nykaa Naturals and Nykaa Trendsetters.

Nykaa has over 100 physical stores across India and sells its products through its website and
mobile app. The company has over 10 million registered users and generates over $1 billion in
annual revenue.

Company Profile

 Founded: 2012
 Headquarters: Mumbai, India
 CEO: Falguni Nayar
 Revenue: $1 billion (2022)
 Employees: 5,000
 Products: Beauty, wellness, and fashion
 Website: www.nykaa.com

Nykaa is one of the leading beauty and wellness retailers in India. The company has proliferated
in recent years and is now the market leader in the online beauty segment. Nykaa is well-
positioned to continue to grow, as the Indian beauty and wellness market is expected to grow
significantly in the coming years.

 The growing middle class in India: The Indian middle class is snowballing, leading to
increased demand for beauty and wellness products.
 The rise of e-commerce: E-commerce is growing in India, providing Nykaa with a new
market.
Stock Split
 A stock split, also known as a share split or
stock division, is a corporate action in which
a company increases the number of its
outstanding shares by dividing its existing
shares into multiple new shares. The total
market capitalization of the company
remains the same before and after the split;
only the number of shares and their
individual prices change. Stock splits do not
affect existing shareholders' overall
ownership stake or equity value.

Before the Split:

You own 100 shares of Company XYZ.

The stock price is $100 per share.
Your total investment value is 100 shares * $100 = $10,000.
After a 2-for-1 Split:

The company announces a 2-for-1 stock split.

You still own 100 shares, but each share has been split into two.
The new total number of shares you own is 100 shares * 2 = 200 shares.
The stock price is adjusted to half its previous value: $100 / 2 = $50 per share.
Your total investment value remains the same: 200 shares * $50 = $10,000.
  Growth years (2015-2021)

In 2015, Nykaa opened its first physical store in Mumbai. The company continued to expand its
physical presence in the following years and now has over 100 stores across India.

Nykaa also overgrew in terms of revenue and customer base. In 2021 the company's revenue was
$1 billion, with over 10 million registered users.

 IPO and beyond (2021-present)

Nykaa went public in November 2021. The company's IPO was oversubscribed, and its shares
were listed on the NSE and BSE stock exchanges.

Since its IPO, Nykaa's share price has risen significantly. The company is now valued at over
$13 billion.
IPO

Initial Public Offering is when a private company offers its shares of stock to the public for the
first time. It is a significant financial event for a company and marks the transition from being
privately held to becoming a publicly traded entity.

In short, IOP is a grand exit for VC investors to sell their shares to the general public.

Nykaa's IPO was one of the most anticipated IPOs in India in recent years. The company raised
₹5,351.92 crore (~$700 million) through its IPO, which was subscribed 81.78 times. This made
it the largest IPO by a woman-led company in India.

Nykaa is an online beauty retailer that offers a wide range of products, including cosmetics,
skincare, haircare, fragrances, and fashion accessories. The company also operates a chain of
physical stores in India.

Nykaa's IPO was well-received by investors due to its strong growth potential. The company is
the market leader in India's online beauty retail segment and is expected to grow rapidly in the
coming years.

 Issue size: ₹5,351.92 crore (~$700 million)

 Subscription: 81.78 times
 Issue price: ₹1,085-1,125 per share
 Listing date: November 10, 2021
 Market capitalization: ₹1 lakh crore (~$13 billion) at listing
 The stock reached an all-time high(Rs.2576) 56%hike concisely as the investors were
bullish about the market, and the company was the only profitable company in the
segment. But the share price decreased by 96% in the next six months.

Price
3000
2507
2500 2200
2000
1500 1146
1085
1000
500
0
1-Nov 1-Dec 1-Jan 1-Feb 1-Mar 1-Apr 1-May 1-Jun 1-Jul 1-Aug 1-Sep 1-Oct
2021-2022 stock prices

To counter This price fall, Nykaa devised a genius strategy to cushion the blow.

Nykaa had two types of investors: Angel and pre-investors. After the stocks plummeted, both the
shareholders panicked and wanted to release their funds to the public to avoid loss immediately
after the minimum lock-in period.

This led to negative sentiments in the market, and the share prices dropped further.

Nykaa's share split

Nykaa announced a 5:1 bonus issue on October 3, 2022. This means that for every 1 share held
by shareholders on the record date of November 11, 2022, they will receive 5 bonus shares.

This is the first time that Nykaa has split its shares. The company said the share split was done to
reward shareholders for continued support and make the stock more liquid.

The bonus issue will take effect on December 1, 2022. On that date, the stock price of Nykaa
will be adjusted to reflect the bonus issue.
 1125

Primary Share 187.5

Bonus Share 187.5 187.5 187.5 187.5 187.5

 To reward shareholders: The share split is a way for Nykaa to reward its shareholders for
their continued support. By giving shareholders more shares, the company essentially
gives them a stake in its future growth.
 To make the stock more liquid: A more liquid stock is easier to buy and sell. This can
make the stock more attractive to investors, leading to an increase in the stock price.
 To make the stock more affordable: A lower stock price can make it more affordable for
investors to buy shares in the company. This can also lead to an increase in the number of
shareholders, which can help to improve the company's financial performance.

strategic and economic reasons behind Nykaa's decision to split its shares:

 To make the stock more attractive to retail investors: Retail investors are typically more
interested in buying shares that are priced lower. By splitting its shares, Nykaa is making
its stock more attractive to this group of investors.
 To increase the stock's trading volume: A higher trading volume can make the stock more
liquid and attractive to investors. This can lead to an increase in the stock price.
 To boost investor confidence: A share split can be seen as a positive sign by investors. It
can signal that the company is doing well and is confident in its future prospects. This
can lead to an increase in the stock price.

The company's goals and objectives related to the share split are as follows:

 To reward shareholders for their continued support.

 To make the stock more liquid and attractive to investors.
 To boost investor confidence and improve the company's financial performance.

Reason for share split:

 Enhances visibility.
 Liquidity for existing shareholders
 Attaining acquisition currency
 Genius strategy to corporate governance nightmare

Nykaa was aware of the negative sentiments in the market due to its fall in stock trading
price and was also aware of 3 significant investors.

Narottam S

Mala gopal

LH India

wanted to exit the share, and even the other investors were waiting to sell the shares on
the 10th of November 2022.

To avoid this situation from further deteriorating, Nykaa decided to split its shares in 1:5

Giving five bonus shares for” free” for every share held.

Implications As per SEBI guidelines, the price of 1 stock, which was brought at 1085 Rs,
will now be worth 180.30 since the other stocks were bonus shares, which cost Rs. They
were valued at 180.30 Rs.

For investors and shareholders, this will reflect as a capital gain on five shares and a loss
on 1 share as per guidelines.

Rules for Capital Gain Tax

 Short-term capital gain (less than 1 year)-15%

 Long-term capital gain (more than 1 year)-10%

Therefore, the investors attempted to stay to avoid paying high taxes.

This is how Nykaa put a strategic blockade for their pre-investors not to leave.

Effect: even though the strategy was implemented to make the pre-investors stay, they
sold their shares to the retail investors and exited.

Repercussions
 The image and goodwill of the company were harmed, leading to more fall in trading
price.

Questions were raised on the ethics and morals of Nykaa’s top management team.

Industry expert review

Akshay Shukla

portfolio fund manager

HDFC

“When Nykaa launched its IPO, there was much hype, and we all flooded with share
orders. The market was looking forward and had high hopes for the IPO.

The decision of Nykaa to give bonus shares indicates that they were working in a grey
area and were fully aware of that fact. It was a hasty decision. The factors affecting the
price fall were majorly external due to recession, volatility in the segment, and a bearish
stock market; instead of explaining this to the investors who helped the company become
a unicorn and support its operations through their funding. They tried to go around them
to save their name. These actions will have severe repercussions for the company. Even
though Nykaa's actions were within legal boundaries, they have lost investors' trust and
will suffer if they want to raise money in another round of funding or through an FPO.”

Conclusion

The Nykaa case study illustrates the dynamic nature of the stock market and the multifaceted
challenges companies can encounter as they transition from private to public ownership. Nykaa's
journey, marked by its successful IPO, followed by a steep decline in share price and the
subsequent share split, offers several key takeaways:

First, the stock market can be highly volatile, and investor sentiment can change rapidly. The
initial success of Nykaa's IPO was followed by a sharp decline in its share price, leading to panic
among investors. This highlights the importance of managing expectations and communicating
effectively with stakeholders.
Second, strategic decisions like share splits can have unintended consequences on a company's
reputation and investor relations. Nykaa's share split was designed to prevent pre-IPO investors
from exiting, but it generated controversy and raised questions about corporate governance and
ethics.

Third, transparency and ethical considerations are paramount in maintaining trust with investors
and the public. The Nykaa case underscores the importance of upholding ethical standards and
communicating clearly to investors, particularly during challenging times.

In conclusion, Nykaa's experience is a valuable case study for companies considering an IPO and
those already in the public markets. It highlights the need for careful planning, proactive
communication, and a commitment to ethical practices. While Nykaa faced significant
challenges, it also allowed the company to learn, adapt, and rebuild investor trust. Ultimately, the
case of Nykaa underscores the resilience required to thrive in the ever-evolving world of finance
and corporate governance.

Terminologies used:
1. IPO (Initial Public Offering): An IPO is when a private company becomes publicly
traded, offering its shares to the general public for the first time.
2. FPO (Follow-On Public Offering): An FPO occurs when a publicly traded company
issues additional shares to the public, often to raise more capital for expansion or other
purposes.
3. SEBI (Securities and Exchange Board of India): SEBI is the regulatory authority in India
that oversees securities and capital markets, ensuring transparency and investor
protection.
4. Venture Capital Investor: A venture capital investor funds startups and small businesses in
exchange for equity, aiming to support their growth and development.
5. Angel Investor: An angel investor is an individual who provides early-stage capital to
startups, often in exchange for equity, mentorship, or both.
6. Pre-Investors: Pre-investors are early company backers, typically participating in funding
rounds before an IPO or significant investment event.
7. Lock-In Period: A lock-in period is a predetermined duration during which certain
shareholders, often company insiders or pre-IPO investors, are restricted from selling
their shares in the open market.
 References

 https://www.cnbctv18.com/business/companies/nykaa-shares-bonus-issue-record-
date-lock-in-period-15143211.htm

 https://www.cnbctv18.com/business/companies/nykaa-shares-bonus-issue-record-
date-lock-in-period-15143211.htm

 https://www.forbes.com/advisor/in/investing/bonus-shares/

 www.thehindubusinessline.com/news/analysts-raise-concern-over-nykaas-unethical-
bonus-plan/article66154242.ece

 https://www.livemint.com/market/stock-market-news/nykaa-bonus-shares-
announced-to-issue-5-shares-for-every-1-held-11664775922440.html

 https://www.moneycontrol.com/company-facts/fsne-commerceventuresnykaa/
bonus/FEV

Literature Review

1. ISSN 2222-1700-

Analysis of Market Reaction Around the Bonus Issues in the Indian Market

Dhanya Alex Ph.D.

2. ISSN 2320-2882

A Study of Bonus Share Announcement effect on Shareholders Wealth in Indian

Capital Market"

Hetalgiri Kishorgiri Mehta